Cambridge IGCSE Business Studies (9-1) 0986 — 2024 May/June Paper 2 · Variant 2

1 (a) Explain two reasons why setting business objectives is important to JJ. Reason 1: ......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 2: ......................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 1 and other information, consider the two new products JJ could produce. Which product should JJ choose? Justify your answer using break-even calculations. • Product A • Product B Product A: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Product B: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: Question Answer Marks 1(a) Explain two reasons why setting business objectives is important to JJ. 8 Award 1 mark for each reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why setting business objectives is important – one of which must be applied to this context. Relevant reasons might include:  A clear target/aim/purpose/goal to work towards – guides the business in the right direction – avoids loss of focus  Decision-making will be focused on the objectives – meaning better decisions are taken – the business may be more efficient  Helps motivate employees – objectives will help focus the employees and management to increase efficiency – making it more likely to be achieved  Comparison of performance – so business managers can compare how each department has performed against their objectives - to see whether or not it has been successful  Allows measurement of success – can judge performance or progress  Helps the business to produce a plan or strategy for the business to achieve these objectives For example: To give a clear target for employees and managers to work towards (1) so they all know what is expected of them (1) when producing different items of jewellery (app). Therefore, this means the target is more likely to be achieved (1). Application could include: jewellery; set up 25 years ago; public limited company; objective to increase profit every year; to expand the business; sold directly to customers in other countries; 30% sold using ecommerce; 70% sold in jewellery shops; raw materials purchased locally; 60 full-time employees; 25 part-time employees; bracelets; rings; earrings. 1(b) Using Appendix 1 and other information, consider the two new products 12 JJ could produce. Which product should JJ choose? Justify your answer using break-even calculations.  Product A  Product B Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both products. Well-justified recommendation. Candidates discussing both products in detail, in context and with a well-justified recommendation, including why the alternative product was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one product. Judgement with some justification/some evaluation of choice made. Candidates discussing at least one product in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the products with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining both products in context should be rewarded with the top marks in the band. 0 No creditable response. 0 1(b) Relevant points might include: Product A  The price is much lower than for Product B, leading to more sales of bracelets needed to break-even  Forecast sales are higher at 2500 per week than Product B which may make it easier to meet demand if it is high  The break-even output is 2000 units per week – which is much higher than Product B – may be more difficult to achieve  The margin of safety is much higher at 500 than Product B making it a safer product to produce assuming all output is sold  The variable cost is lower by $15 than for each ring Product B  The price of rings is much higher than bracelets by $70  Break-even is 625 rings per week  The margin of safety is 125 per week if forecast sales are accurate – which is much lower than for Product A at 500 per week – increasing risk of not covering costs if sales are lower than forecast  The profit is much lower for Product B if all forecast sales are made – at $10 000 rather than $12 500 for Product A  Forecast sales each week is much lower at 750 rings, 1750 fewer items to produce each week  May be easier to promote and sell fewer items each week making it easier to achieve maximum sales Recommendation  JJ should choose to produce Product A, bracelets, as the margin of safety is higher than for Product B and may be less risk of not breaking-even if not all the forecast sales are made each week. Rings are more expensive to produce and if not sold then the variable cost of each ring is $40 so more will have been spent on variable cost per product than producing bracelets at $25 each.  JJ should choose to make Product B, rings, as the break-even output is much lower at 625 than the 2000 needed for bracelets and therefore may be easier to achieve.

More questions on Costs, scale of production and break-even analysis

2 (a) Explain two benefits and two limitations for JJ of employing part-time workers in its factory. Benefit 1: .......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Benefit 2: .......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Limitation 1: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Limitation 2: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the advantages and disadvantages of the following three ways JJ could promote its new product in country X. Which way should JJ use? Justify your answer. • Advertising in fashion magazines • Handing out leaflets in Main City • Point-of-sale displays in shops Advertising in fashion magazines: .................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Handing out leaflets in Main City: ..................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Point-of-sale displays in shops: ........................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Recommendation: ............................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 2(a) Explain two benefits and two limitations for JJ of employing part-time 8 workers in its factory. Award 1 mark for each relevant benefit/limitation (max 4). Award a maximum of 1 additional mark for each explanation of the benefit/limitation in context. Relevant benefits might include:  The employees are more flexible in the hours they work – than the 60 full- time workers  Ask/more likely for the part-time workers to increase their hours – during busy times to meet demand for bracelets  Can/more likely increase operating hours in the factory when demand increases – as the 25 part-time workers may be willing to work extra hours  Part-time employees often do not need to take time off for appointments, such as to visit the doctor – less likely to cause disruption to the manufacture of rings  May be able to attract skilled employees who want to work reduced hours  May reduce business costs if pay lower wages than wage rates for full- time workers  It may be easier to make part-time workers redundant Relevant limitations might include:  If the employee sees the job as temporary, then they may be less committed to the business - produce less jewellery  Takes longer to recruit two part-time employees than one full-time employee – so less time to focus on selling in other countries  There may be an increase in induction and training costs – which may make it difficult to increase profit each year  More difficult to communicate with part-time employees  If the job is temporary then less likely to provide training for them For example: If the employee sees the job as temporary, then they may be less committed to the business (1) and produce fewer items of jewellery (app). Application could include: jewellery; set up 25 years ago; public limited company; objective to increase profit every year; to expand the business; sold directly to customers in other countries; 30% sold using ecommerce; 70% sold in jewellery shops; raw materials purchased locally; 60 full-time employees; 25 part-time employees; bracelets; rings; earrings. 2(b) Consider the advantages and disadvantages of the following three ways 12 JJ could promote its new product in country X. Which way should JJ use? Justify your answer.  Advertising in fashion magazines  Handing out leaflets in Main City  Point-of-sale displays in shops Level Description Mark 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of at least two ways. Well-justified recommendation. Candidates discussing all three ways in detail, in context and with a well-justified recommendation, including why the alternative ways were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification/some evaluation of choice made. Candidates discussing at least two ways in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining all three ways in context should be rewarded with the top marks in the band. 0 No creditable response. 0 2(b) Relevant points might include: Advantages Disadvantages Advertising in  Read by target  Can be expensive to fashion market – more likely advertise in a fashion magazines to be seen by magazine – potential customers increases costs for – possibly increasing JJ – possibly sales lowering profit if  Can be shown in advertising is not colour with effective at photographs/images increasing revenue – may make the  Often only published jewellery look more once a month or attractive - more once a week – appealing to therefore may not be customers seen as often by potential customers  Only seen by people who read the fashion magazines, and these may not be the target market for JJ’s new jewellery product Handing out  A cheap method of  May not be looked at leaflets in Main advertising – keeps – so waste of money City down marketing – not effective costs advertising of either  Given out in the bracelets or rings street in Main City so  May be seen as junk may be handed out so thrown away – to many people – annoying to potential reaches a wide customers and may range of potential deter them from customers who may buying JJ’s products want to buy jewellery  Leaflets can be kept for future reference, especially if discount coupon included 2(b) Advantages Disadvantages Point-of-sale  Seen by potential  May not be noticed displays in shops customers when they so may not be enter the jewellery effective shop – may attract  Cost of displays and more customers to incentives to retailers buy JJ’s jewellery to put the point-of-  Makes JJ’s rings sale displays of the and bracelets stand new jewellery in out from competitors’ their shops products  Difficult to make a jewellery item stand out to potential customers as the jewellery items are small and can easily be missed Recommendation Justification could include:  JJ should choose to advertise in fashion magazines because these are purchased by potential customers who are more likely to see the adverts and therefore be more likely to buy JJ’s new jewellery product. Leaflets may not even be looked at and thrown away and point-of- sale displays are only seen if potential customers go into that retailer’s shop in the first place, therefore limiting the number of potential customers seeing the display.  JJ should choose to hand out leaflets in Main City because these will reach a wide range of people shopping in the city and will be more likely to attract people who have not previously been customers of JJ’s products, making them more likely to purchase JJ’s new jewellery.  JJ should choose to provide point-of-sale displays in jewellery shops as they will be seen by customers entering the shop and these will be people who are already interested in buying jewellery so may be the most effective promotion to use so may generate the most sales.

More questions on Marketing mix

3 (a) Explain four reasons why profit is important to a business. Reason 1: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 2: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 3: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Reason 4: ......................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Consider the opportunities and threats of ecommerce for JJ. Which is likely to have the most effect on JJ? Justify your answer. Opportunities: ................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Threats: ............................................................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 3(a) Explain four reasons why profit is important to a business. 8 Award 1 mark for each relevant reason (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant reasons might include:  It is the reward to the entrepreneur/owners/shareholders – and is the reward for them using their skills and qualities in the business  It is a source of finance – to purchase non-current assets/for investment in long-term assets/development of new products  May attract investors – if the business is expanding and raising capital by selling additional shares  It is an indicator or measure of success - the higher the profit the more successful the business is likely to be  Can indicate if a product should be withdrawn if it is not making a profit  To measure the performance of managers For example: If the business makes a good profit, then it may attract investors (1) to help it raise capital by selling additional shares (1). 3(b) Consider the opportunities and threats of ecommerce for JJ. Which is 12 likely to have the most effect on JJ? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of the opportunities and threats. Well-justified conclusion. Candidates discussing the opportunities and threats in detail, in context and with a well-justified conclusion, including why the opportunities or threats had the least effect, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of the opportunities or threats. Judgement with some justification/some evaluation of choice made. Candidates discussing the opportunities or threats in detail and applying them to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the opportunities or threats with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the opportunities and threats in context should be rewarded with the top marks in the band. 0 No Creditable Response 0 3(b) Relevant points might include: Opportunities  Websites can be used to promote JJ’s jewellery – reaches potential customers from other countries – cheaper than many other forms of promotion  Orders can be taken directly by JJ over the internet – this means that intermediaries such as jewellery shops are not required – JJ’s profit margins are therefore not shared  Customers may be encouraged to purchase more additional items of jewellery when buying one item – easier to link through to other products that make a matching set  It is easier for JJ to order raw materials – quicker and cheaper than other communication methods such as phone calls  Easier to change prices, if necessary, rather than having to reprint brochures – makes it cheaper to do this Threats  High levels of competition from many other jewellery manufacturers which may also have websites – makes it harder to be the business that people choose to buy from  Website maintenance costs and costs of updating the site - will increase expenses and total costs  Cannot try on the jewellery, such as rings – to check if it fits and if it meets customers’ expectations – may be less likely to make a purchase if cannot see the products  Delivery and return costs may be high  The risk of hacking and losing customer data/increased security costs to keep the website safe from data being corrupted Conclusion Justification might include:  Ecommerce will provide more opportunities than threats as 30% of JJ’s target customers are from countries outside of country X and having a website is a low-cost way to promote and sell their jewellery. There are many competitors but as long as JJ can keep attracting customers using the internet then this will mean the threats from increased competition may not be a concern.  Ecommerce will provide more threats than opportunities as many competitors will also have websites and sell their jewellery online. There is no guarantee that people searching for items of jewellery such as bracelets will find JJ’s website and consumers could easily find a competitor’s website instead and not be aware of JJ at all.

More questions on Marketing strategy

4 (a) Using Appendix 2 and other information, explain two ways JJ may be affected by the forecast increase in unemployment in country X. Way 1: ............................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Way 2: ............................................................................................................................... ........................................................................................................................................... Explanation: ...................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [8] (b) Using Appendix 3 and other information, consider the following two environmental issues when JJ manufactures its products. Which issue should JJ choose to solve first? Justify your answer. • Using coal for fuel in its factory • Buying from suppliers that damage the environment Using coal for fuel in its factory: ........................................................................................ ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Buying from suppliers that damage the environment: ...................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... Conclusion: ....................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... [12]

Mark scheme: 4(a) Using Appendix 2 and other information, explain two ways JJ may be 8 affected by the forecast increase in unemployment in country X. Award 1 mark for each way (max 2). Award a maximum of 3 additional marks for each explanation of the way JJ may be affected by the forecast increase in unemployment – one of which must be applied to this context. Relevant ways might include:  Makes it easier for JJ to recruit new employees – larger pool of unemployed people to choose from – may be more skilled people available for work  May make it easier to resist demand for higher wages from employees – rising level of unemployment means more competition amongst workers for jobs - so willing to accept lower wages  May lead to lower demand for JJ's products – consumer spending is lower – as many people have lost their jobs so incomes are lower  Lower priced products produced by JJ may see an increase in demand – as consumers have less income available to spend on luxury high priced items  JJ may be less willing to invest – as future sales may not increase for some time – making it more difficult to gain a return on investment  Lower sales in country X so JJ may try harder to export its products - spreads risk For example: May make it easier for JJ to recruit new employees (1) as there is a larger pool of unemployed people to choose from (1) and many of these workers may be skilled people available for work (1) with experience of how to manufacture jewellery (app). Application could include: jewellery; set up 25 years ago; public limited company; objective to increase profit every year; to expand the business; sold directly to customers in other countries; 30% sold using ecommerce; 70% sold in jewellery shops; raw materials purchased locally; 60 full-time employees; 25 part-time employees; bracelets; rings; earrings; increase from 3% to 6%. 4(b) Using Appendix 3 and other information, consider the following two 12 environmental issues when JJ manufactures its products. Which issue should JJ choose to solve first? Justify your answer.  Using coal for fuel in its factory  Buying from suppliers that damage the environment Level Description Marks 3 Sound application of knowledge and 9–12 understanding of relevant business concepts using appropriate terminology. Detailed discussion of the two issues. Well-justified conclusion. Candidates discussing the two issues in detail, in context and with a well-justified conclusion including why the alternative issue was rejected should be rewarded with the top marks in the band. 2 Sound application of knowledge and 5–8 understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one issue. Judgement with some justification/some evaluation of choice made. Candidates discussing at least one issue in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and 1–4 understanding of relevant business concepts. Limited ability to discuss the problems with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the two issues in context should be rewarded with the top marks in the band. 0 No creditable response 0 4(b) Relevant points might include: Using coal  Using coal causes global warming giving JJ a bad for fuel in its reputation - bad publicity from pressure groups factory  Price of coal is increasing which continually increases cost of power for the factory – if JJ continues to use coal it will raise the costs of manufacturing jewellery  Could choose to reduce use of coal so JJ could benefit from the 25% government grant to invest in solar power for the factory – this would reduce the environmental impact of JJ’s factory which other manufacturers may not be doing so improving JJ’s image - reducing the pressure from environmental pressure groups  As all jewellery manufacturers use the same process and have the same increases in the price of coal – may be no change in JJ’s competitiveness Buying from  JJ may be negatively affected by its association if suppliers consumers become aware of where JJ buys its raw that damage materials - JJ’s suppliers are causing environmental the damage to the areas around their mines environment  Some consumers are only interested in the price of JJ’s products and may not care about the suppliers – so may have no effect on JJ’s sales/revenue  Pressure groups may try to make JJ change its suppliers – may lead to increased raw material costs as located further away – raising prices/reducing profit margins  JJ could encourage its suppliers to change their mining operations to more environmentally friendly methods helps JJ’s reputation – but may lead to increased costs Conclusion Justification might include:  The issue of using coal should be the first to solve because coal prices are increasing so costs will continue to rise if JJ does not change to solar power. The 25% grant from the government will help. The initial investment can be repaid over a long time period and costs reduced throughout this time. Customers may not be aware of the environmental damage caused by the suppliers JJ uses and so there may be no effect on sales or revenue and there is no rush to reduce this problem.  The issue of buying from local suppliers that damage the environment should be solved first as the damage to JJ's reputation may be difficult to recover from and the business may lose many loyal customers of its jewellery, leading to lower revenue/profit.

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